Arguably, getting the sourcing right will be key to building an efficient supply chain. Grofers plans to stick to its tried and tested practice of sourcing most of the products from their place of origin. Already, it sources 95 per cent of its staples requirement from Delhi and neighbouring states. Take honey for instance. It will source the product directly from vendors from Coorg and Himachal. Tea, on the other hand, will be sourced from Assam and Kolkata.
Abneesh Roy, senior vice-president, institutional equities, Edelweiss Securities Limited, says, “Grofers has to look at each private label category carefully to attract consumers. Tea, for example, is a tough segment to crack given the varying consumption pattern across the country. One has to make different varieties available to the buyer while keeping the inventory model lean.”
For certain categories, playing smartly with price points will be the first step to gaining new consumers, says Roy. He says that Patanjali was able to crack the fast moving consumer goods market by fighting largely on price. The price tag on a product plays an important role in determining customer acceptance of a new offering or a new brand.
To keep costs low and maintain an efficient inventory model, Grofers plans to continue to work with limited stock keeping units (SKUs). It currently deals with 2,500 to 3,000 SKUs. To keep the supply chain lean, the company will restock inventory every two to three weeks.
Kumar says Grofers has been operating in the business long enough and has a good understanding of consumer buying behaviour. The team has adequate sales volume data across categories to be able to manage the replenishment schedule efficiently.
According to Roy, a hub and spoke distribution structure appears to be the best option for retailers who wish to work with a lean inventory model. He cites brick-and-mortar retailer DMart’s expansion in Maharashtra and Gujarat as an example of how a player can manage inventory effectively using a cluster-based approach. The move ensures that a retailer’s cost of distribution will go down even as the visibility of products in the market will remain high.
Grofers has also increased its warehousing space significantly in the run up to the expansion of its private label business. It has 26 warehouses across the country. The company doubled its warehousing capacity earlier this year, taking the total storage space up to 1 million square feet.
The company has set aside a war chest of Rs 100 million to be invested over the next three years to boost its private label business, strengthen sourcing and improving its manufacturing capability.